Group Five right sizing results in job losses

Published Aug 23, 2017

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JOHANNESBURG - Group Five is continuing to bleed jobs as the listed construction and engineering group attempts to right size and realign its engineering and construction (E&C) business cluster to current market activity levels.

The total number of employees in the group, including limited duration contract workers, declined by 9% to 8472 at end-June this year from 9313 last year - and from 13659 employees at end-June 2013.

This follows Group Five slashing its number of employees by 23.5% or 2841 people between June 2015 and June last year.

Of the decline in the year to June this year, 255 jobs were lost due to retrenchments. Themba Mosai, the chief executive of Group Five, yesterday indicated the restructuring and retrenchment process was not yet completed. “We’re still looking at some units in the business and rationalising to get our overheads to the right level,” he said.

The group’s latest annual report indicated that further changes to realise an additional R100million saving at the corporate office in the 2018 financial year had been identified and included a restructuring and retrenchment process. Restructuring costs of R40.5m in the year to June in the E&C cluster was one of several “once off events” to knock the financial performance of the group in the year to June.

Of this amount, R14m in retrenchments costs were attributable to the civil engineering business, R12m to the projects business and R11m to the energy business in the E&C cluster.

Group Five reported an operating loss of R653.8m in the year to June compared an operating profit of 722.3m in the previous year. Revenue declined by 21.6% to R10.8bn from R13.8bn, attributed to “a tough and challenging market”. Fully diluted earnings a share were reduced to a loss of 8.29c from a profit of 3.75c.

A final dividend was not declared, which meant full year dividend declined to 14c based on the interim dividend paid in the first half of this year compared to 72c paid in the previous year. The group’s overall order book contracted to R14.5bn at end-June from R15.7bn in December.

The E&C cluster was largely responsible for the group’s poor financial performance, with all the businesses in the cluster being loss making in the financial year. E&C cluster revenue declined by 25% to R8.8bn from R11.8bn.

The projects business in the E&C cluster was the poorest performer, with revenue plummeting by 47% to R1.3bn from R2.4bn. It reported a widening in its operating loss to R902.4m from R236.9m.

Mosai said the cluster achieved a marginal profit of R44m in 2015, stressing that this downward trend could not be allowed to continue and plans were afoot to reverse it.

Reasons for the loss by the cluster was the recognition of R159.1m for the group’s financial socio-economic contribution to the Voluntary Rebuild Programme with the government; R244m commercial close-out and final settlement of the long outstanding Transnet new multi product pipeline contracts; R40.5m in additional restructuring costs; and the R470m reduction in profitability from the underlying E&C segments.

Shares in Group Five dropped 2.9%on the JSE yesterday to close at R15.05.

- BUSINESS REPORT

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